Shaky Battery Maker Claims an Advance

DETROIT — Lauded during a visit by President Obama, A123 Systems was supposed to be a centerpiece of his administration’s effort to use $2 billion in government subsidies to jump-start production of sophisticated electric batteries in the United States.

Instead, the company, which makes lithium-ion batteries for electric cars, has stumbled along with the rest of the nascent industry and now threatens to give more ammunition to critics of the president’s heavy spending on new energy technologies.

A123 had to cut workers at its new factory in Livonia, Mich., financed in part with the promise of a $249 million government grant, after its battery for one new electric vehicle faltered and required an expensive recall. Completion of the factory has been delayed. The company is running short of money and has warned that unless it raises more cash from private investors, it might not be able to stay in business.

Yet as much as A123 represents the risks of the government’s battery technology program, it also represents its promise. On Tuesday, A123 Systems unveiled a new battery technology that the company says is a breakthrough in the industry.

The success or failure of the new technology may well determine the fate of A123. It will also render an early verdict on Mr. Obama’s broader push to promote electric cars and build a domestic industry to develop and manufacture advanced batteries to run them.

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Joe Parker, left, and Dwayne Washington at the A123 plant in Livonia, Mich.Credit
Stephen McGee for The New York Times

The president’s prediction of a million electric cars on the road by 2015 seems unattainable, given the tepid demand for the first models on the market. So far this year, combined sales of the Chevrolet Volt plug-in hybrid and Nissan Leaf electric car total less than 10,000 vehicles. The slow sales have already become a campaign issue, and the failure of the solar-panel company Solyndra has also drawn intense criticism of the administration’s clean-energy subsidies.

In response to the Solyndra bankruptcy, which cost taxpayers about half a billion dollars, the Department of Energy has tightened controls on loans related to electric cars and other fuel-saving technology. In the case of Fisker Automotive, which received the defective A123 batteries, the government froze its loans when the company missed production schedules.

Executives of A123, which is based in Waltham, Mass., say the company has gotten off to a slower start than anticipated because the market for electric cars has failed to grow. The company reported a loss of $125 million in the first quarter of this year, as revenues dropped 40 percent from the year earlier.

“It’s been softer than what we and everyone else expected,” said David Vieau, chief executive of A123.

Yet the major automakers remain committed to electric vehicles so far, and G.M. has given A123 the contract to supply batteries for the Chevrolet Spark, an all-electric minicar due next year.

The government, for its part, recently gave A123 an extra two years to meet production targets at its Michigan factory and earn the full $249 million grant, which is being disbursed in tranches. So far, only about half the money has been given to the company.

In addition to the factory grant, A123 has received about $14 million in Energy Department money for research and development.

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Prismatic battery cells are stacked at the A123 plant in Michigan. The company makes lithium-ion batteries for electric cars.Credit
Stephen McGee for The New York Times

The government may have financed the company because “these guys have some new chemistry, some new ideas,” rather than the ability to commercialize the product, said Professor Prashant N. Kumta, a materials science expert at the University of Pittsburgh, who began working on lithium-ion batteries in the 1990s.

He said that A123 had been “a bit of a disappointment” because it had not put much product into the market.

The Energy Department said it would not comment on the viability of individual companies.

But a spokeswoman, Jen Stutsman, said, “The market for electrified vehicles is expected to triple by 2017 — which is why automakers in every part of the world are racing to introduce new models of hybrid and electric vehicles.”

“The investments being made today will help ensure that the jobs that support this rapidly growing industry are created here in the United States,” she said.

Supporters of the energy programs say it is unrealistic to expect every government-backed company to thrive immediately.

“We should be willing to take on some of the risks for the new energy economy, even if some of these start-ups fail,” said Representative Diana DeGette of Colorado, the ranking Democrat on the House Energy and Commerce subcommittee that investigated Solyndra.

But Mitt Romney, the presumed Republican nominee for president and former governor of Massachusetts, has attacked subsidies to energy companies as a waste of taxpayer dollars. “When Mitt Romney is president, government will stop meddling in the marketplace,” a Romney spokeswoman, Andrea Saul, said on the campaign’s Web site.

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Ronnie Slaughter at the banding station for a rechargeable battery that will go into a 2013 model of an all-electric vehicle.Credit
Stephen McGee for The New York Times

A123 Systems is a prime example of how a promising venture can bog down in the harsh realities of the automotive marketplace. Founded in 2001, the company has been primarily focused on making lithium-ion battery packs specifically for cars, like the Fisker Karma and a forthcoming all-electric version of the Chevrolet Spark, a minicar made by General Motors.

But the company stumbled when it was forced to recall potentially defective batteries planned for use in the Fisker vehicle. And with the future market for electric cars in question, A123 might not survive solely on batteries for those models.

Instead, A123 is now hoping that the new technology it unveiled Tuesday, called Nanophosphate EXT, will help it enter new markets. The company says the new electrolyte chemistry eliminates the need for heating and cooling in extreme temperatures. That would avoid the addition of costly and heavy temperature-management equipment and prolong the life of the battery.

The technology could be used to produce batteries for telecommunications equipment, military vehicles and hybrid gas-electric cars that employ start-and-stop engine systems. It also could yield batteries that could be used to replace the millions of ordinary lead-acid batteries in cars currently on the road.

“It’s a hedge against the market for electric vehicles,” Mr. Vieau said.

The company is hoping that the promise of the new technology will help persuade investors to back a $50 million convertible debt offering by the company.

One battery expert said the new technology’s extended life span could have an immediate impact on the luxury-car market.

“The car company can advertise that this lithium-ion battery is going to last the life of the vehicle, with no need for replacement,” said Ahmad A. Pesaran, an engineer at the government’s National Renewable Energy Laboratory in Golden, Colo.

Potential automotive customers can test samples later this year, with production scheduled to begin in the first half of 2013.